Lecture 9 - Lehrstuhl für Controlling - Technische Universität München

Technische Universität München
Some practices representing potential “solutions” to the synergy
problem
Solution approach
• Creation of groups of divisions
• Linking part of the EVA bonus
to EVA in another division
• Cost allocation on the basis of
divisional profitability
• Activity-based costing
• Other approaches to transfer
pricing like an internal auction
Idea and drawbacks of the approach
• Solves partly the allocation or transfer pricing
problem between the grouped divisions but not
between different groups
• Measurement problem remains for divisional
manager’s performance
• New bureaucratic hurdle for divisional managers
and free-rider problem
• Encourages cooperation and reduces the conflicts
due to overhead allocation or transfer pricing
• Addresses cost allocation and transfer pricing
problem by rewarding cooperation
• Might give incentives not to care enough for the own
division’s profitability
• Identifies cost drivers to better allocate overhead
costs
• Tries to more accurately capture the prices that the
units would observe if they were truly independent
Value-Based Management: Lecture 9
8
© Gunther Friedl – SS 2013